Venture capitalists are likely to become even bigger sugar daddies in the solar world as the battered financial markets make it tough for companies to borrow large sums to build factories and power plants.
SJF Ventures, for one, wants it known that it's fishing for companies that can't get money from banks, which are falling like dominos thanks to unwise bets on the housing market.
"SJF is actively seeking companies with several million dollars in sales and exciting new growth opportunities that they cannot pursue via debt financing due to the current capital markets crisis," read a newsletter sent Monday by the North Carolina-based VC firm.
SJF won't be the only VC firm taking advantage of the turmoil that saw the Dow Jones Industrial Average plunge as much as 800 points before closing down 370 points on Monday. Solar companies, which over the weekend celebrated a hard-fought battle to win eight more years of investment tax credits from the federal government, saw their shares sink more than 20 percent at one point on Monday.
The sellout reflected investors' belief that the $700 billion bailout plan approved by the U.S. government and bank rescue efforts by European governments won't ease the credit crunch as quickly as expected.
LDK Solar's shares dropped 12.32 percent to close at $24.70 per share. SunPower's Class B shares closed at $55.34 per share, down 7.77 percent. GT Solar's shares plummeted 12.18 percent to close at $8 per share.
"Despite the government incentives, solar companies still need credit to go out there and build solar projects with 20 years or so of useful life. It's a cloud over the industry today," said Rick Hanna, a Morningstar analyst.
Granted, the solar industry's long-term outlook is likely to remain cheery, given mandates by more than two dozen states that require utilities to offer renewable power.
The eight-year federal solar incentives will provide tax breaks as high as 30 percent for businesses and residents to install solar panels and build power plants (see Lawmakers Approve Energy Tax Credits, Bailout). The government also will offer rebates for consumers to buy plug-in electric cars, which will drive power demands.
"I don't think the market in one day or one week can access all that means against the backdrop of a much broader concerns" by states and power companies to meet renewable-energy goals, said Ron Pernick, co-founder of Clean Edge. The firm co-authored a report released Monday that identified five emerging cleantech sectors in the Pacific Northwest.
But the stock market's performance on Monday provided a sobering view of other large forces that will impact the growth of the solar industry, at least in the short term. It's too early to predict when the roiling financial markets will rebuild their health, analysts said.
There will be fewer banks and less money from those that have remained to provide multimillion-dollar loans to build factories and power plants, two critical steps for solar companies hoping to grow and profit.
And in these dismal market conditions, IPOs also are likely to remain sluggish (see Lehman's Fall to Create Greentech Woes, Angling for IPOs in Tough Times and KPMG: VCs Expect Slow IPOs Until 2010).
Without debt financing, private solar companies will have to turn to VCs and other private-equity firms. Or they can wait until the credit crunch eases, but that would mean delaying expansion plans and failing to meet goals on time.
VCs already have shown they are willing to place heavy bets by handing out more than $100 million per deal to companies such as Nanosolar, AVA Solar and SoloPower in the third quarter of this year. In fact, solar companies raised $1.5 billion in 26 rounds in the third quarter, compared to $1.05 billion in 71 rounds in the whole of last year, according to Greentech Media's Venture Power Report (see Greentech Investments See Record 3Q).
The large deals are partly due to solar companies' need for large amounts of capital.
"Unlike building browsers, companies have to actually build these damn things," said Greentech Media senior analyst Eric Wesoff, referring to solar-equipment factories and power plants.
Taking more money from VCs can mean giving up a large stake of the company, however. Larger deals also lead to higher valuations which, combined with more intense competition among VCs for the best solar deals, means VCs will get less for their money than they did a few years ago.
Public solar companies won't have VCs to turn to, but they can still seek help from other types of private-equity firms.
"Some of the Chinese solar companies have more short-term debt than cash," Hanna said, who monitors Chinese companies such as LDK Solar, Trina Solar and Yingli Solar. "Their whole plans are prefaced on their ability to continue to tap equity and debt markets to finance their operations."
Aside from companies, states that want to set aggressive climate change policies also could fall victim to the lobotomized financial markets.
California, for example, is in the process of creating a carbon-emissions trading program, a measure that advocates say could force and entice power-plant operators to pollute less.
But doing so requires the state to spend money developing and implementing the program, which also will require companies to spend money to meet emissions requirements. The mandate also could mean more expensive power for consumers as utilities pass costs to ratepayers.
Last week, California Gov. Arnold Schwarzenegger told U.S. Secretary of Treasury Henry Paulson the state might need an emergency federal loan of up to $7 billion, the Los Angeles Times reported.
Financial market woes already have caused industries in Australia, Poland and other countries to oppose creating or strengthening carbon cap-and-trade programs.
-- Editor Jennifer Kho contributed to this story.